Celebrations, Hangovers and Headaches

Celebrations, Hangovers and Headaches

Adrian Gilbert, MD SX3, Autumn 2022 Update

Permacrisis? This has undoubtably been a difficult year for many. The pandemic hangover continues to plague supply chains and resources, now compounded by the global economic impact of the war in Ukraine. In the UK, financial instability has followed political instability, with a tough budget just round the corner.  

For our industry, there is simply no room now for poor performance, with claims inflation at the front of many minds and adequacy of claims reserves under sharp focus from the regulators. The need for expert advice and informed support has never been greater. 

However, I am unfashionably optimistic and think the word “crisis” has been overused. In part this is because business has been, and looks likely to remain, good, but also because I know Claims Managers are adept at responding well to crises, and I am confident colleagues and clients will continue to rise to the challenges ahead. Read on. 

Claims Inflation

As headlined in our autumn update in 2021, supply chain challenges (resource and materials shortages) have been driving up claims costs, exacerbated by increased energy costs. In August 2022, Credit Suisse were predicting UK Motor claims inflation could be 11% for FY 2022, although by way of a silver lining, their latest prediction (October 2022) has reduced that prediction to 10% with the reduction in second hand car values outstripping the inflationary impact of increased repair cycle times. 

Claims operations have come under yet further pressure to find ways to work more efficiently and to save on indemnity spend. Performance benchmarks are in high demand at the moment, with insurers seeking to understand how their performance compared with their peers. SX3 are helping by getting under the skin of that benchmarking data with independent expert assessments of claims handling and operational performance. 

From the performance reviews we have carried out in 2022 so far, the headline average claims handling audit performance score is 92.65%, which is an improvement from the 2021 headline average of 90.99%.  

However, leakage rates in 2022 have increased. This is not as surprising as you might imagine given that to establish an accurate leakage rate, you need to look at settled claims, so these results represent the legacy of poorer claims handling performance seen in 2021. We would expect leakage rates, on average, to improve in 2023. 

Claims Reserving

There has been increased focus on claims reserving practices, following the demise of several motor insurers amid question marks over the adequacy of their claims reserves. The Gibraltar Financial Services Commission acted swiftly, requesting their regulated members to review their reserving performance.  

SX3 supported a number of insurers this year with their reviews, looking at reserving philosophies, procedures, control processes and exception management. This enabled insurers to identify process weaknesses plus benefitting from an independent assessment of the adequacy of their claims reserves. Whilst these reviews can sometimes be a headache for insurers, we do our best to ease the pain through the transparency of our approach, putting any risks identified into proper context, and ensuring plenty of communication throughout the process – all delivered by auditors that actually have a deep knowledge of claims!  

Whiplash Reforms

From the most recent headline data published by OIC (up to 30th Sept 22), 351,409 claims have been submitted though the OIC Portal to date, with monthly new notifications levelling out at c. 24,000 per month.  

Questions are still being asked on both sides about the effectiveness of the reforms, with 67.3% of claims registered in the portal being declared mixed tariff injuries (tariff defined whiplash mixed with injuries that fall outside the tariff definition of a whiplash), although not all those claims still feature non whiplash elements when the medical report is produced.  

Delays in medical reports being produced to the compensators was the key issue raised when SX3 conducted its market survey early in the year, and with only 54,368 OIC claims settled / closed to date, this issue hasn’t as yet been resolved.  

Judicial rulings on the correct method to value mixed tariff injuries are still awaited following the fast tracking of test cases and will be key to helping quantify the benefits of these reforms.

Reasons To Be Cheerful SX3 (apologies to Ian Dury and the Blockheads!) 

  1. Last month, SX3 celebrated completing its 8th year of trading, and 8th straight year of growth. Our service capability has developed and broadened. We have invested significantly in the reengineered our audit processes in response to increased volumes, and significantly strengthened our resources.  
  2. Our ESG investments continue with support to Alzheimer’s charities and also to John Green’s sterling work providing supplies to Ukraine. 
  3. Party Time – 17th November to celebrate with clients and friends in London. If you would like to join us, please get in touch with Lisa.Fielder@sx3.co.uk 

If you, or you know someone who is looking for a change, we are always interested in talented claims professionals to join our team, just get in touch.